Managing a small to medium sized business is pretty demanding.  Managing workforce issues can result in owners and managers committing more time and resources than they want to non-revenue generating activities: ensuring all the right paper work has been issued appropriately and on time, maintaining sickness records, holiday records and other leave entitlement. Not to mention regularly updating personal files with job and pay details, contact details, emergency contact details and dealing with HR related issues that arise.

These are all necessary but time consuming tasks and can result in owners, managers and directors spending a significant amount of time undertaking these functions at the cost of building and managing their main business activity.

One potential solution to this problem is for the business to outsource its HR function to third party provider.  This will allow the business management team to focus on the core business.

There are clear advantages to small and medium sized businesses outsourcing their HR to a true HR Business Partner.

Firstly, they can access specialist skills and knowledge from the full range of HR expertise. This is likely to include, but not be limited to, recruitment and selection, remuneration and reward, performance management and legal compliance.

Secondly, they can access the administrative infrastructure of the HR Business Partner, including an HR Records and Information System (HRRIS), a document management system and a procedural framework for HR administration / record keeping.

These systems allow outsourced HR Business Partners to improve the quality of the HR function and at the same time save costs. This is achieved by the company being able to leverage the HR administrative infrastructure for a fraction of the cost of supplying their own.

Outsourcing can either remove the need for an HR person, or support the existing HR role via an efficient HR process that has one definitive data source and has removed duplication and non value-adding activities. This system allows the management team to spend significantly less on HR administration and more time on revenue generating work.

I’m often asked, “When is the right time to outsource HR?” My advice would be ask the following 4 questions:

1. Is HR competing for valuable resources?

Does the business have a manager or director “dabbling” in HR?  Maybe it’s the finance director, who, as a result of signing off the payroll records, is now responsible for dealing with all the people issues. It could be the MD’s PA, who looks after the interviewing, sends the offer letters, and whose office has ended up housing the personnel files and has somehow transformed into the HR Manager.  The question to ask is: “What is the opportunity cost of the time and energy these staff, with limited HR knowledge and experience, being involved in HR matters?” Put simply, what critical business functions are not getting the full attention of your team as a result of them picking up HR issues?

2. Does the HR Department have the necessary resources and expertise? 

When the business reaches a certain size, it may consider it easier to have an in-house HR department. However, the business is still likely to benefit from having an outsourced HR Business Partner. A business with less than 200 people is likely to find the cost of an HR infrastructure: an HRRIS. An applicant tracking database, a document management system and an HR knowledge management system can be prohibitively expensive.

Also the person looking after HR is likely to be relatively junior, and quite likely to be a HR generalist, lacking the knowledge skills and experience of, say, an HR Director.  An outsourced HR Business Partner will have invested in that infrastructure and will have a network of highly experienced HR professionals.  The cost of the infrastructure and the network is shared amongst the outsourced HR business partner’s client base. This allows the smaller business to leverage the infrastructure and the professional expertise for a fraction of the cost it otherwise would have had to pay.

3. What is it that I want from my HR business partner?

There is a vast range of outsourced HR consultants. There are the paralegals who will offer an HR helpline. Often the main focus is on managing employment law risk. There are “hired hands” who will come in and manage disciplines, grievances and investigations. And there are interim HR managers, who will come in and manage a project or a function on behalf of the business.

With regard to my business People Based Solutions, we aim to work with our client’s management team. The focus is on supporting them to meet the needs of their business.  We are a team of HR experts with specialist HR knowledge, which our clients can tap into to help them achieve a competitive business advantage.

We have also invested heavily in the creation of an HR infrastructure to handle all the ‘transactional’ HR services for our clients. This enables small and medium sized companies to effectively manage recruitment administration, HR record keeping, and to ensure that they comply with their legal and regulatory obligations.

4. What are the advantages to this business of outsourcing HR?

By handing over your HR to a trusted, knowledgeable, and well-resourced HR Business Partner, not only will the business be able to focus its key people on its core business, they will also enjoy the financial and efficiency gains outlined above.  Also, a well-managed HR function is likely to increase employee morale and create a more engaged workforce. This in turn will have a positive effect on staff retention, employee attendance, and teamwork. Research shows that employees who are engaged are more enthusiastic and productive, which offers business a real competitive advantage, that competitors will find hard to imitate.

This article has been posted by Sean McCann, the Managing Director of People Based Solutions an HR consultancy specialising in delivering outsourced HR solutions to small and medium sized businesses. If you would like to know more about how we can help you manage you transactional, operational and strategic HR systems, policies and procedures contact us at: enquiries@peoplebasedsolutions.

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